BHP skirts US export ban to sell shale condensate

IN a move that should see it get a better oil price, BHP Billiton has taken a leading role in the push to overturn a decades-old US crude oil ban, declaring it will export shale condensate, a type of light crude oil, from Texas without explicit permission.

While BHP follows two other US producers in exporting shale oil, the Melbourne-based mining giant appears to be the first major company to do so without Commerce Department permission, declaring it is confident that what it is doing is legal.

The deal is to sell about $US50 million ($57m) of light oil to Dutch trader Vitol. If the US government concurs on what has been a big political issue, it may open the gates for more producers to export shale oil, which is being produced in greater volumes than US refineries can take.

As of last night, the US government had made no comment on BHP’s move.

“After taking the necessary time to thoroughly examine the issues involved, we concluded that processed condensate is ­eligible for export,” a BHP spokeswoman said.

“BHP Billiton has worked through a robust due diligence, secured a dedicated supply chain, and has taken steps to ensure the quality of our product for export.

“The processed condensate that BHP plans to export is not crude oil under BIS (Bureau of Industry and Security) regulations.”

The condensate has been distilled in towers in Texas, which BHP has judged puts it outside the US crude ban.

In September, the head of Pioneer Natural Resources, Scott Sheffield, said he had been getting “significantly improved” prices for condensate he had received Commerce Department approval to export.

He said the US shale glut meant Pioneer was receiving a $US10 to $US15 per barrel discount on the benchmark West Texas Intermediate crude price by selling domestically.

It is not known whether BHP initially applied to the Commerce Department for permission to export. Washington has been sharply divided over whether to allow US oil exports, which have been restricted since the Arab oil embargo in the 1970s. Oil majors including Exxon Mobil have called for an end to the ban, saying that overseas sales would create jobs and improve the balance of trade.

But opponents have said they fear exports would cause petrol prices to rise in the US, hurting consumers and angering voters.

The new overseas sale is likely to ratchet up the pressure on the Obama administration and congress to address export policy soon. US energy producers are planning to lobby hard on the issue, while refiners and chemical companies, which benefit from abundant, low-cost US oil, are pushing back.

BHP said it had signed an agreement to sell 650,000 barrels of oil that hadn’t gone through the traditional refining process that turns oil into petrol and other fuels.

The other company that received government permission to export minimally processed oil was Enterprise Product Partners, a Houston-based pipeline and oil-storage operator.

BHP sold some ultralight oil from its Eagle Ford fields in South Texas to Enterprise for that first cargo and has participated in some of the pipeline company’s more recent exports, which will approach 4 million barrels by year-end. In the process, BHP learned the rules for lightly processing the ultralight oil, spelled out in Enterprise’s ruling from the government.

Other energy and trading companies have applied for private rulings from the government, which hasn’t approved any since northern spring.

Until now, all the US oil cargoes that have been exported have been handled by Enterprise. Companies including Pioneer and BHP have been selling barrels into those cargoes but have been selling at a discount to what they could fetch on the open market, while Enterprise captured additional profit on the deal.

About 1.6 million barrels of light US oil have been exported since the Commerce Department rulings, with additional cargoes planned. Exports remain a tiny fraction of US output, which has risen to nearly 9 million barrels of oil a day, according to the Energy Information Administration. Imports account for the rest of the nation’s daily consumption of 20 million barrels a day.

“This is the door opening one more crack and we’ll see what happens next,” said Rusty Braziel, who runs consulting firm RBN Energy. He said prices overseas would have to be much higher than in the US to justify the shipping costs. “I’m not sure the economics are even there right now to open the floodgates,” he said.